Is This the Solution to Student Loan Debt?

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Want to go to college, but want someone else to front the bill?

The opportunity may be closer than you think.

What am I talking about?

Income share agreements (ISAs).

These agreements allow investors to give money to individuals in exchange for a percentage of their future earnings. A few companies are already starting to make use of these contracts, but there’s a potential for the amount of ISAs in the world to grow.

On April 9th, Senator Marco Rubio and Representative Tom Petri brought these ISAs into legislation as the Investing in Student Success Act. If this bill is passed, it would give legal guidelines to these investments and make them much more common among students.

How is this different from your average student loan?

Alison Griswold explains in her post, “Because You’re Worth It,” that these investments are a lot easier to pay back since instead of a flat rate, the money is repaid “in proportion to earnings.”

There is a hope that this system will help a variety of students, including those from disadvantaged backgrounds, but it’s unclear whether or not this will actually happen.

Since payments are calculated as a percentage of a student’s future earnings, it’s easy to assume that investors will be looking for students who are going to be working at higher income jobs post-graduation.

Griswold points out that, “with an ISA the return the investor sees is directly tied to how well their investment—the student or borrower—performs.”

It’s stated in the bill that investors cannot make the students do anything, but there is a pressure applied on both ends to invest in/be a student who goes on to a high-paying position post-college.

College tuition is insanely expensive and it’s just going to keep increasing. If the Investing in Student Success Act passes, this could be a realistic resource to help you pay for your higher education.

The catch is that you then have to think of yourself as an investment.

Investors aren’t doing this just because they want to fund your education. They’re expecting their money back through a percentage of your post-college income.

This means, to be an ideal candidate, you’ll have to be thinking about your future career and life endeavors earlier than ever before. Many high school students aren’t sure what they want to be “when they grow up.” But if they want to stand out to investors, this will have to change.

Will this focus on the future detract from a person’s youth? Will it limit career exploration and cause students to focus only on the highest paying career paths? Would a system like this make it more difficult for recent graduates to create non-profits like Adam Braun’s Pencils of Promise? Or would being indebted to a company not be that different from owing money to a bank?

It definitely has me thinking about whether any of these investors would really be willing to pay for a creative writing major’s tuition. Somehow I doubt it.

With the amount of debt current students are acquiring, should the next generation be under pressure early on to really think about what they want to do after college?

I’m not sure.

This bill definitely has the potential to make an impact on the student loan debt situation. If it does pass, it also has the potential to completely change the way we approach career exploration and our time in college.

Tell us what you think! Is this an important and vital step in lessening the country’s student loan debt? How do you think it will affect career exploration? Leave your comments below.

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